Marc Faber on the economy and financial markets

Below is a wide-ranging interview with Marc Faber on four videos on CNBC TV18 in India in which he explains his views on inflation, currencies, commodities, stocks and more, all courtesy of Edward Harrison at Credit Writedowns.

Asset-based economy. In general, he thinks we are in an inflationary environment, whereas I think deleveraging is secular and means any inflation is only cyclical. But he shares my belief that zero interest rates induce money balances to move into consumption or into higher-yielding assets. He believes this is a boon over the medium term (if not the short or long term) for financial assets, whether they be stocks, bonds, commodities, real estate or art. And it is something that will continue, he says. Faber believes Bernanke will be loath to raise rates aggressively given his prior statements and writings.

Currencies. Faber takes the view, with which I agree, that the Fed’s easy money policies after 1998 flooded the global economy, especially emerging economies, with liquidity. This has led to asset bubbles. Hong Kong residential real estate is one example he cites. As a result, Faber thinks the US dollar is no longer overvalued at present levels. A snapback rally for the dollar resulting from oversold levels would be bearish for asset markets. But, longer term, Faber thinks the dollar is weak.

Equities. There has been a huge rally everywhere. He says he is not a buyer at these levels. However, as central banks are going to continue to print money, stocks could continue higher – but he would not bet on a blow-off rally from these levels.

Commodities. Faber thinks zero-rate levels make it extremely difficult to value anything. He poses the question: which would you rather own – the “US dollar at zero interest rates or a ton of gold or a ton of copper or a ton of crude oil?” Of course, commodities are supply constrained, whereas dollars are not, so there is a justification for buying them. But, he anticipates the commodity hoarding by China is about to end and that is bearish for industrial commodities as well as precious metals. As with other commodities, he thinks the huge run-up in oil could induce a setback. Long run, he is an oil bull because of limited supply.

Financial Crisis. He is disturbed by the fact that a crisis caused by excessive debt growth, especially as a result of Federal Reserve policy, has been allowed to pass with the same players in control. He says enjoy the ride for now. Longer term, this necessarily means the same bad policies will follow, which will lead to a system-wide financial collapse.

India. Faber is bullish longer term. Short term, there could be a correction. India is one of the best-protected countries because of less vulnerability to the export sector. He also believes the Reserve Bank of India has one of the best monetary policies in the world – supervising the financial system closely, relatively tight, and mindful not just of core inflation but also of other price levels like asset prices.